BY MARK SCHUMANN

VERO BEACH – The city’s transactional attorneys, John Igoe and Rick Miller, met with representatives of the Florida Municipal Power Association in Orlando today to discuss the proposed sale of Vero Electric to Florida Power & Light.

Because the city is a member of the FMPA, it has contractual obligations to the organization and its bondholders.  Whatever deal the city hopes to make with FPL must comply with FMPA contracts.

According to FMPA officials, it quickly became clear in today’s meeting that the rational set forth by Igoe and Miller in an eight-page memo dated  Jan. 10 “did not provide a convincing argument that it (the proposed purchase and sale agreement) meets the terms of the FMPA contracts.”

Igoe and Miller had earlier proposed that the transfer of Vero Electric’s assets to FPL amounts to the city “abandoning” its utility. Because the deal calls for FPL to pay $115.5 million in cash and an additional $85.5 million in other consideration, some think it is a stretch to call the proposed transaction anything other than a sale.

The distinction between an abandonment of assets and a sale is an important one, because FMPA’s contracts require cities to retain their utilities so long as they are members of the group.  The provision is primarily intended to protect FMPA’s creditors.

Because the city is obligated to remain a member of the FMPA’s All Requirements Project through September 30, 2016, it now seems clear the sale of Vero Electric will likely be delayed until some time after that date.

While the latest version of the purchase and sale agreement between the city and FPL has an expiration date of Dec. 31, 2016, the deal was otherwise structured to close in Jan. of 2014.  Some have raised questions about what might need to be renegotiated if the deal cannot be closed on the target date.

Several other issues were discussed in the five-hour meeting between the city’s transactional attorneys and FMPA officials today.  Those issues – Internal Revenue Service restrictions on the sale of FMPA power, and the question of who will assume the city’s contingent liabilities – have been raised previously, but have yet to be resolved.

While FMPA officials say they are willing to cooperate with the city and to assist where possible, they maintain it is ultimately the city’s responsibility to ensure the deal does not jeopardize the FMPA’s credit rating, or the tax-exempt status of the organization’s bonds.

They say it will be for the city’s transactional attorneys to convince bond trustees, bond counsels and the Internal Revenue Service that the proposed sale of FMPA power to FPL will not violate IRS guidelines.

Further, FMPA is still looking for adequate assurances that contingent liabilities the city will continue to have on FMPA bonds can be covered in the event the OUC should ever be unable to meets the obligations it is assuming on the city’s behalf.

The deal contemplates the OUC taking on the city’s FMPA entitlements in exchange for $35 million in cash.  But the assignment of the city’s entitlements to the OUC will not absolve the city of contingent liability to make good on its proportionate share of FMPA’s bond debt.

Though FPL could assume the city’s contingent liabilities, the company has so far been unwilling to take on the risk.  As a publically traded company, any losses resulting from an OUC default would have to be borne by stock holders, and could not be passed on to rate payers.

A fairly new issue arose when it became clear a bifurcated sale, such as the one the city is proposing, is not provided for in the FMPA contracts.  Those agreements assume the buyer acquiring the physical assets and the customer base of the selling utility will also be taking on that city’s FMPA entitlements.

The deal to sell Vero Electric calls for the Orlando Utilities Commission to assume the city’s FMPA power entitlements, while FPL will be acquiring the city’s transmission and distribution system and the right to serve its 34,000 customers.

Allowing for a bifurcated sale will require amendments to FMPA’s contracts, and those will need to be approved by each member of the FMPA’s St. Lucie Two, Stanton One and Stanton Two power projects.